Friday, January 22, 2016

Quails' Gate increases exposure to U.S. wine market

Photo: Tony Stewart of Quails' Gate and Bacas Family Estates (photo courtesy of Quails' Gate) 

The strong U.S. dollar and wine marketing trends in the United States have triggered several strategic moves by Bacas Family Estates, the Stewart family holding company for Quails’ Gate Estate Winery.

These include:

  • Bacas chief executive Tony Stewart recently announced the acquisition of Envolve Winery, a 2,000-case producer with a tasting room in Sonoma. This is the company’s second Sonoma winery. In 2012 it acquired the 40,000-case Valley of the Moon winery in Glen Ellen. It was been restructured; now operating as Madrone Estate Winery, it produces three labels including Lake Sonoma and will produce the Envolve wines.
  • Bacas is winding up Plume Wines, a 2010 joint venture with Dan Zepponi to produce primarily Napa Cabernet Sauvignon and sell it in Canada. The dramatic change in the Canada/U.S. exchange rate virtually wiped out the profitability of exporting the wine to Canada.
  • Exporting Quails’ Gate wine to the United States is now “a definite consideration” with the Canadian dollar at 70 cents U.S. “We only sell a little bit now through Washington and Oregon, and a bit through the Earl’s Restaurants,” Stewart says. But he has been getting more and more inquiries about Quails’ Gate wine from American wine retailers.

 The Quails’ Gate wine strategy both in Canada and with its Sonoma production is pegged to the premium segment, or sweet spot, of the market.

According to the Silicon Valley Bank’s recent State of the Industry report, this segment is healthy and is forecast to grow between nine and 13% this year. Bottle prices will rise four to eight percent in 2016 for wine selling for more than $10 a bottle, while volumes and prices will drop at lower price points.

A summary of the bank’s findings says: “Bottled fine wine imports will begin to take a larger market share this year, while bulk foreign wine loses market share. A strong and strengthening U.S. dollar, available foreign supply and willing millennials will encourage imports at all premium price levels.”

Tony Stewart is picking up those signals when considering exporting more Quails’ Gate wines. The winery’s current production is about 55,000 cases a year.

“I don’t see it has a huge market,” he said in a recent interview. “Maybe it is 2,500 cases annually, which could be a good thing for Quails’ Gate. And there is a question of Icewine. With Quails’ Gate, we have an opportunity. Canadian wines are not well known. You are looking at a very select buyer. You set your pricing parameters at what works for you and you sell without a need to sell large volumes. I have spoken with wine store people who say to let them know if we ever get our wines into the market. They say they have customers coming in and looking for different things.”

Envolve Winery was founded in 2008 by members of the Benziger family with a partner. It was acquired by Bacas primarily for its Sonoma tasting room.

“We were looking for a place to be able to have Lake Sonoma wines tasted and poured, a direct to consumer experience,” Stewart says.

Bacas bought Valley of the Moon and Lake Sonoma Winery in 2012 from F. Korbel & Sons. Both are among the oldest brands in Sonoma (Valley of the Moon was established in 1863). The Stewart family completed a renovation of the historic Madrone Vineyards Estate at the former Valley of the Moon Winery in the fall of 2014, adding a small-lot winery within the original barrel cellar built in 1887. The winery’s hospitality center at Glen Ellen also was remodelled.

Lake Sonoma formerly had a tasting room in Healdsburg but that has closed several years earlier, with a devastating impact on the membership of the Valley of the Moon and Lake Sonoma wine clubs. Membership had collapsed to 200 from 5,000.

“We are reaching out to those 5,000 names that we have on file and saying we are back,” Stewart says. “We hope that we could finish this year with Lake Sonoma having 1,000 club members. That is the goal. If we can get it to 2,000, that is fantastic.”

A healthy wine club is key to selling directly to consumers rather than being squeezed by distributors in the ultra-competitive wholesale wine market in the United States.

“Without a physical presence, our ability to grow the Lake Sonoma wine club was very minimal,” Stewart says. “Now they can come to the shop. They can taste the wines. They can be talked to about the club. They will be reciprocal benefits at Madrone and Quails’ Gate. That is not so big for people that don’t travel to Canada; but for our club members in Canada, they find it interesting when they go to the U.S. and they get the club discount and free tastings.”

Valley of the Moon was renamed Madrone Estate Winery (another historic Sonoma name) after the Stewart family bought it in 2012. Now, Valley of the Moon is commercial tier of wines under the Madrone umbrella. The winery also produces two premium tiers, including an upper end reserve tier.

The Envolve wines become a premium tier in the Lake Sonoma range. “They are right where we are, in the $20 to $45 range,” Stewart says. “They had a few wines that were $60; mainly small lots. They did varieties like Malbec, Pinot Noir, a Bordeaux blend and Chardonnay. We will carry on with a few of those.”

Envolve also has an 800-member wine club; that was another of its attractions.

There has been positive synergy between the Sonoma wineries and Quails’ Gate. “We have gained a lot of intellectual capital,” Stewart says. “Our knowledge of markets in the U.S. has made us much more aware of how the changes in British Columbia may affect us, with grocery stores coming into play. Every year we get together as a leadership team, meeting winemakers and management from both wineries. We communicate how we are handling club business, the wine shops and production issues. There are lots of advances in Canada on viticulture that we can employ down south. So we are working on that.”

The wine club business has been illuminating, even though Quails’ Gate has a thriving wine club with about 1,400 members.

“The club business in the U.S. is much more developed than Canada, so that has been a huge eye-opener to us as to what we have to try and do at Quails’ Gate in order to keep up with the consumer who is looking for something more than the club that offers discounts,” Stewart says. “They want some unique attributes to the club. Membership has privileges. We are adding a whole bunch of things at the Quails’ Gate wine club to take us to the next level.”

For both Quails’ Gate and the Sonoma wineries, the wine clubs and the tasting rooms are fundamental for profitable direct-to-consumer sales.

“The only way to be effective is to develop a solid DTC market,” Stewart says. “Twenty-five percent of Quails’ Gate sales are at the estate. That strong business at the estate helps us. When we go across Canada, we are not beholden to price incentives. We go in and we make no qualms about it. Our wines are going to be over $20 across Canada.”

The Madrone and Lake Sonoma wines also sell primarily the DTC channels and to restaurants.

Bacas has plans to distribute some of those wines in Canada despite the exchange rate. “Madrone is strictly high-end direct-to-consumer wines,” Stewart says. “We will start to see the first Madrone wines come into Canada in about a year’s time. They will be limited to a few hundred cases.”

To conclude, here are notes on recent wines released by Quails’ Gate in the Canadian market.

Quails’ Gate Chardonnay 2014 ($20.49). This crisp and refreshing Chardonnay begins with aromas of tangerine, apple and peach with a hint of butterscotch. On the palate, the wine has flavours of citrus, melon and apple with a very subtle toasty note. The flavours are bright, with a vivid, clean focus. The finish lingers. 91.

Quails’ Gate Merlot 2013 ($21.79 for 3,865 cases).  Dark in hue, the wine has appealing aromas of cassis, blueberry and blackberry. On the palate, there are flavours of black cherry, black currants and vanilla. The texture is firm and concentrated. There is a spicy finish, with notes of chocolate and cedar. 91.

Quails’ Gate Pinot Noir 2013 ($24.39 for 4,345 cases).  The wine begins with aromas of cherry, along with the earthy notes that aficionados call forest floor. The flavours are rich with layers of dark fruit and spice on the finish. The texture is still youthfully firm. This wine benefits from decanting or from cellaring. 90.

Quails’ Gate Old Vines Foch Reserve 2013 ($34.79 for 1,345 six packs). This has been something of a cult wine since the first vintage in 1994. It is a bold wine, almost black in colour and boldly oaked. It delivers a huge spoon of sweet fruit (black cherry, plum) and chocolate to the palate. The oak tannins give the wine a firm structure. A take-no-prisoners wine like this can handle strong flavoured meats, such as lamb or venison. 92.

Quails’ Gate Fortified Vintage Foch 2013 ($18.17 for 420 cases of 750 ml). The wine begins with aromas of plum and liquorice. It is big and fleshy on the palate, with flavours of plum and fig that mingle with chocolate on the spicy finish. 90.


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